Evaluation of The Justa Mine PDF

Curtin University Graduate School of Business
Mineral and Energy Capstone 603
Capstone Case Study MSc. Mineral Economics

Financial evaluation of Mina Justa Copper-Gold-Silver Mining project in Peru
Lecturer: Brian Maybee
Student: Jafet I. Carpio Vera
CAPSTONE CASE STUDY MINERAL AND ENERGY ECONOMICS CAPSTONE 603
STATEMENT OF AUTHORSHIP
I, the undersigned author, declare that this case study is my own account of my research and contains as its main content work which has not been previously submitted for a degree at any tertiary educational institution. The report is my own composition and, the information derived from published or unpublished work of others has been acknowledged in text and the list of references. 30th Nov, 2011 (Signed) (Date)
Jafet I. Carpio Vera (Name)
ACKNOWLEDGMENT
I would like to convey my appreciation and thanks to Dr. Bryan Maybee of Curtin Graduate School of Business (CGSB) for guidance, advice and teaching me the Mineral Finance and project evaluation 601 unit, and to Professor Pietro Guj for Resource Sector Finance 602 unit which assisted me to understand and develop a DCF simplistic, stochastic and MAP of my project.
My thanks are also to my family and a special girl that gives me the force and motivation to continue studying.
Table of Contents ACKNOWLEDGMENT .................................................................................................................. 3 LIST OF FIGURES ......................................................................................................................... 7 LIST OF TABLES ........................................................................................................................... 8 LIST OF ABBREVIATIONS ............................................................................................................ 9 EXECUTIVE SUMMARY ............................................................................................................. 10 PART 1: INTRODUCTION .......................................................................................................... 11 1.1 1.2 1.3 1.4 1.5 1.6 Background to the topic area explaining why it is of interest ................................ 11 Copper industry overview ........................................................................................ 11 Case Study Objectives .............................................................................................. 12 Methodology ............................................................................................................ 12 Project limitations .................................................................................................... 13 Project timetable ...................................................................................................... 14
PART 2: LITERATURE REVIEW................................................................................................... 15 2.1 2.2 2.3 2.3.1 Location of the project ............................................................................................. 15 Major characteristics of Justa Mine project ............................................................ 16 Mine .......................................................................................................................... 16 Pit Optimisation 16 18 19 19 19 20 20 21 21 22
2.4 Oxide plant .................................................................................................................... 18 2.4.1 Crushing circuit 2.4.2 Vat Leaching 2.4.3 Clarification 2.4.4 Solution ponds 2.4.5 Ripios 2.4.6 Solvent extraction 2.4.7 Electrowinning (EW) 2.5.1 Comminution 2.5.2 Flotation
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2.5 Sulphide ore plant ......................................................................................................... 21
2.5.3 Concentrate handling 2.5.4 Tailings thickening and disposal 2.6.1 Copper Cathode 2.6.2 Copper concentrate
23 23 24 24
2.6 Products: ........................................................................................................................ 24
2.7 Copper supply ................................................................................................................ 24 2.8 Copper demand ............................................................................................................. 25 2.9 Strategic analysis ........................................................................................................... 26 PART 3: MODEL INPUTS, RESULTS AND DISCUSSION .............................................................. 28 3.1 Inputs and Assumptions................................................................................................ 28 3.1.1 Pricing basis: 3.1.2 Annual production schedule-Mining and processing 3.1.3 Capital Expenditure (CAPEX) 3.1.4 Operating Expenditure (OPEX) 3.1.5 Royalties and taxes 3.1.6 Interest, borrowing and discounts 3.1.7 Stochastic Model-Copper 3.1.8 Sensitivity Analysis 3.1.9 Risk simulation (Monte Carlo) 3.2 3.2.1 Base case DCF-Stochastic 28 29 31 35 35 36 36 36 37 38 39 40 42 44
Results and Discussions ............................................................................................ 38
3.2.2 Sensitivity analysis: One input-One output 3.2.3 Sensitivity analysis: Many inputs - One output 3.2.4 Risk Analysis (Monte Carlo simulation) 3.2.5 Stochastic Model
Part 4: CONCLUSIONS AND RECOMMENDATIONS .................................................................. 45 4.1 Conclusions .................................................................................................................... 45 4.2 Recommendations ........................................................................................................ 45 References: .............................................................................................................................. 46
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APPENDICES ............................................................................................................................. 47 Appendix 1: Gold and silver prices ..................................................................................... 48
LIST OF FIGURES
Figure 1: Mina Justa Copper Project - General Location Figure 2: Pit design Figure 3: Mina Justa- Oxide circuit flow sheet Figure 4: Justa Mine - Sulphide circuit Figure 5: World refined copper production Figure 6: World refined copper consumption Figure 7: Present value of net cash flow of Justa mine project Figure 8: NPV and WACC Figure 9: Sensitivity analysis-Tornado diagram Figure 10: Sensitivity analysis-Spider diagram Figure 11: Monte Carlo-Histogram Figure 12: Monte Carlo-Cumulative probability and NPV Figure 13: Copper price stochastic model
LIST OF TABLES
Table 1: Project timetable Table 2: Pit Inventory Table 3: world production and consumption of copper Table 4: Annual production schedule from 2011 to 2016-mining Table 5: Annual production schedule from 2017 to 2023-mining Table 6: Annual production schedule from 2011 to 2016-processing Table 7: Annual production schedule from 2017 to 2023-processing Table 8: Oxide and mining plant capital costs Table 9: Sulphide plant capital costs Table 10: Sustaining and deferred capital Table 11: Closure costs Table 12: Operating expenditure for Justa Mine project Table 13: Inputs of sensitivity analysis Table 14: Inputs of Monte Carlo simulation Table 15: Sensitivity analysis-NPV values Table 16: Comparison of DCF simplistic, stochastic and MAP
LIST OF ABBREVIATIONS
Ag: Silver Au: Gold Bt: Billion of tones CAPEX: Capital expenditure Cu: Copper DBPB: Discounted payback period DCF: Discount cash flow dmt: Dry metric tons EW: Electro winning IRR: Internal rate of return K/E: Capital efficiency factor LME: London metal exchange MAP: Modern asset pricing Mt: Millions of tones NCF: Net cash flow NPV: Net present value NSR: Net smelter return OPEX: Operating expenditure pH: Potential of hydrogen PLS: pregnant leaching solution ROM: Run on mine SX: Solvent extraction t:t: tons: tons WACC: Weighted average capital cost
EXECUTIVE SUMMARY
The case study has evaluated the financial performance in Justa copper-gold-silver mining project in Peru, and had found that the project was lucrative and would maximize returns to shareholders. It was developed a simplistic DCF model, DCF Stochastic and MAP model. For this study was considered the DCF stochastic model like the main model and based in this it was constructed a sensitivity and a Monte Carlo analysis. The sensitivity analysis has categorized variable inputs of the project which have been critical to the NPV. The risk analysis from Monte Carlo simulation has indicated the expected NPV for the project, and the cumulative probability. Furthermore, it was developed a forecast model of copper price for the time of the project in order to reduce the uncertainty of the price. The report has four parts. The part 1 introduced the background of the case study, objectives, methodology, limitations and timetable. The part 2 presents the literature review of the project reviewed; the part 3 shows the inputs and assumptions used in the financial model and discussed the results. Finally, the part 4 concluded the report and provided some recommendations.
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PART 1: INTRODUCTION
1.1
Background to the topic area explaining why it is of interest
The demand of copper in the future will continue to be met by the discovery of new deposits, technological improvement, and efficient product design and by taking the advantage of the renewable nature of copper through reuse and recycling (Agrawal, 2010). In addition, other metals such as gold and silver will have strong demand. Thus, mine copper projects with contents of gold and silver are very attractive for investors; based in this view the Justa mine copper project which is located in Peru can be very profitable (Charriot Resource, 2009). This project consists in develop a mine, an oxide plant (cathode copper), and a sulphide plant (copper concentrate) with some quantity of gold and silver. The project is interested because will permit to know costs and profitability of this kind of deposits integrated the copper chain. In the case of copper oxides it is produced from 0.5 % to 99.9 % of purity approximately and in the case of copper sulfides it is obtained from 1.37 % to 37.4 %. 1.2 Copper industry overview
According to international copper study group data (2010), world copper mine production increase by 18% during the 10-year period from 13.6 million metric tons (Mt) in 2001 to 16.1 Mt in 2010: copper in concentrates rose by 16% while solvent extraction-electro winning (SX-EW) production rose by 28%. South America holds 45% of copper mine production, Asia and Europe are also major importers of concentrate and South America is the greatest provider. Regarding to global copper reserve base is close to 1Bt, (38% of global copper reserves are located in Chile) and at the present rate of production, will be depleted in 62 years approximately ignoring potential new deposits and scrap recycling (Boston consulting group, 2010). Mines, refineries and semi-fabricators are not concentrated in the same geography, for example mines are highly concentrated in South America, mainly in Chile, refineries are more equally distributed across the globe and 72% of semi-fabricators are located in Asia and Western Europe (Boston consulting group, 2010).
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1.3 -
Case Study Objectives Construct a base case Discount Cash Flow model (financial-technical) under assumed certainty and under probabilistic condition to identify Justa mine profitability through investment decision criterion based on Net present value (NPV): When NPV > 0 invest in Justa Mine project; When NPV = 0, invest only if there is not better projects like this; When NPV < 0, reject the project.
Establish the profitability of Mina Justa based in CAPEX, OPEX, percentage of finance and other inputs.
Develop a stochastic model in order to do a forecast of copper price for the time of the project.
Highlight the effects on the outputs of the project through Sensitivity Analysis.
1.4
Simulate risk (Monte Carlo) Methodology
The following methodology will be used in constructing a financial model for the Justa mine project: Base case DCF modelling for Copper, Gold and Silver commodity.
The inputs from feasibility study and Peruvian governments mineral taxation a nd royalty regimes will be analysed. Some assumptions and justifications will be made.
The general inflator, real price escalator and cost escalator.
The real dollars value of prices and costs will be converted to normal dollar value using general inflator, real price escalator and cost escalator.
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The gross revenue, net smelter return (NSR) and royalty will be calculated.
Operating expenses will be calculated.
The before tax profit and after tax profit will worked out.
The Net Cash Flow (NCF), NPV and cumulative discount cash flow will be calculated.
Detail capital investment in real and nominal dollars.
Depreciation schedule.
Sensitivity analysis and Monte Carlo simulation
Forecasting, analysis of supply and demand, and strategic view of copper. Forecasting of the copper price Copper supply Copper demand Strategic analysis
1.5
Project limitations
The data limitations have impacts on this case study and thus, assumptions will be made necessarily to develop the base case Discount Cash Flow (DCF) model.
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1.6
Project timetable
Number 1 2 3 4 5 6 7
Activity Pro forma Proposal Data collection DCF base case Risk analysis Scenario analysis Mineral Forecasting
Duration 3 days 7 days 4 days 10 days 4 days 5 days 7 days
Start 10/08/2011 13/08/2011 25/08/2011 29/08/2011 8/09/2011 12/09/2011 17/09/2011
Finish 12/08/2011 24/08/2011 28/08/2011 7/09/2011 11/09/2011 16/09/2011 23/09/2011
Strategic-Analysis of supply
6 days
24/09/2011
29/09/2011
Strategic-Analysis of demand
10 days
30/09/2011
09/10/2011
10 11
Project writing Presentation preparation
22 days 3 days
10/10/2011 20/11/2011
31/10/2011 22/11/2011
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Project presentation
1 day
23/11/2011
23/11/2011
12 13 14
Project corrections Project editing Project submission
2 days 2 days 1 day
24/11/2011 25/11/2011 30/11/2011
25/11/2011 26/11/2011 30/11/2011
Table 1: Project timetable
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PART 2: LITERATURE REVIEW
2.1
Location of the project
The Mina Justa Copper project is a project that owned 70% by Charriot resource limited, 30% by KOREA corp. and LS-Nikko Copper Inc. The property is located approximately 400km southeast of Lima in Peru (Figure 1) and has been intensively explored. The mineralisation to be exploited is consisted of a main deposit and smaller satellite deposits. The main deposit extend over an area of approximately 2,100m north-south by 1,500m west-east, and range in thickness from a few meters up to 150 m. The mine will be developed by open pit mining, and processed oxide ore by leaching, solvent extraction-Electro winning (SX-EW) to produce cathode (99.99% Cu) and sulfide ore by flotation to produce concentrate with some content of gold and silver.
Figure 1: Mina Justa Copper Project - General Location
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2.2
Major characteristics of Justa Mine project
Total probable reserve: Waste: Oxide reserve: Sulphide reserve: Strip ratio: Mine life: Average pit slope:
163.4Mt @ 0.8 % Cu 402.4Mt 114.6 Mt @ 0.56 % Cu 48.8 Mt @ 1.37 % Cu 2.45 12 years 45
(Access: single ramp with 10% gradient, 20m bench) Preproduction stripping: Resources indicated: Resources inferred: 27.9Mt 336.8 Mt @ 0.76 % Cu (Cut off 0.3 % Cu) 64.6 Mt @ 0.82 % Cu (Cut off 0.3 % Cu)
2.3
Mine
The Justa mine deposit is located at low altitude in an arid area of moderate topography. Rock strengths are low to moderate. There is no groundwater at planned mining depths and insignificant rainfall. These factors suggest that open pit mining should be routine and low cost. With the objective to minimise dilution and mining losses it was selected 10 m benches and 5 m mining flitches (Charriot resource, 2009). 2.3.1 Pit Optimisation The resource model prepared by Snowden was based on 25x25x5 m parent block size with 5x5x1 m sub-cells. Several regularised mining models were prepared to simulate the impact on dilution and mining losses relative to the in-situ resource model, and a block size of 10 x 10 x 5 m was selected as the basis for mine planning. Pit optimisation of the mining model (Indicated mineralisation only) was carried out using Whittle Four-X software. Optimisation input parameters were based on then-current information, including overall slope input (41 to 44) from Knight Pisold (Charriot resources, 2009).
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The table 1 shows the pit inventory of the mine.
Pit Inventory Unit Vat Ore Concentrator Ore Waste Tonnes Total Material Strip Ratio SR Mt Mt Mt Mt t:t Main Pit 90.4 48.0 329.5 467.9 2.38 Northern Oxide 17.0 43.5 60.5 2.56 Copper 40 Magnetite Total 2.6 0.8 10.9 14.3 3.23 Manto 4.6 18.5 23.1 3.96 114.6 48.8 402.4 565.8 2.46
Table 2: Pit Inventory
Pit design is shown in figure 1.
Figure 2: Pit design
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2.4 Oxide plant The Mina Justa Project utilises sulphuric acid leaching to extract copper from the Oxide ore. The leached copper is purified and upgraded by solvent extraction (SX) to provide a rich electrolyte to the electrowinning (EW) plant, producing copper cathodes. The feed to the leaching process is prepared by crushing and screening to achieve a -8 mm product size. Throughput is 12 Mt/a. The Oxide ore process flow sheet is depicted in Figure 3.
2.4.1 Crushing circuit This is sized to handle 1712 t/h, assuming overall 80% availability. Ore is delivered by 220 t mine haul trucks tipping directly into the run on mine (ROM) bin, although provision is made for stockpiling and feeding for the process. The crushing circuit is composed by: Primary crushing Secondary crushing Tertiary crushing Quaternary crushing
Figure 3: Mina Justa- Oxide circuit flow sheet

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2.4.2 Vat Leaching According chariot resources (2009), crushed ore (-8 mm) is sent to the fine ore bin, which provides a surge capacity of one hour. The crushed ore is drawn from the fine ore bin, and is sprayed with dilute sulphuric acid as it passes from one discharge conveyor to another to promote leaching. The acidified ore is transported by conveyor for loading into leaching vats. The vats are composed by concrete shells (30 m wide, 40.5 m in length and 7.6 m high), and capable of holding 12,800 t of ore for a six day leaching cycle. At any one time, 16 vats participate in the leaching process. Furthermore, 18 vats have been designed to allow for loading, unloading, filling, draining and maintenance. At the end of the leaching cycle, the remaining solution is drained from the vat and the moist waste solids (ripios) are removed by a clamshell grab, placed into a hopper and discharged onto a conveyor system for transfer to the ripios dump. The solution (PLS) is sent to the next step which is clarification (figure 3).
2.4.3 Clarification
After leaching the PLS is clarified using flocculants, as a result is obtained a solution without solids which is the overflow who is sent for the solution ponds and the underflow solids are pumped to the vats.
2.4.4 Solution ponds The PLS pond is 6 m deep and has been sized to contain 24 500 m 3 of solution. The pond provides over 24 hours of surge capacity, as the advance flow to SX is 980 m 3/h. This allows for some PLS blending and settlement of any remaining suspended solids. The raffinate pond is also 6 m deep and has been sized to contain 15 800 m3 of solution. It is not covered. It also serves as an emergency reservoir in case one of the vats is drained by accident or
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intentionally in an emergency. Allowing for the liquid volume from one vat, the surge capacity ahead of the vats is over 10 hours (chariot resources, 2009).
2.4.5 Ripios The ripios remaining after the leaching stage are removed from the vat by an unloading crane with a 22 m3 clamshell grab. The clamshell discharges the ripios into a hopper that feeds the ripios receiving conveyor. This material is then transported to the ripios area via three discharge conveyors. The last ripios conveyor feeds a bin, from which haul trucks are loaded for final disposal in the adjacent ripios dump.
2.4.6 Solvent extraction According chariot resources (2009), the SX process involves the selective extraction of copper from the dilute PLS to produce a high purity, high tenor copper sulphate solution suitable for the EW process. The SX system is composed of a single train that includes two extraction mixer-settlers treating the PLS. These are in series with a loaded organic wash mixer-settler and then an extraction mixer-settler, which produces the rich electrolyte feed to electrowinning. At the nominal PLS copper tenor of 7 to 8 g/L and pH at 1.9, copper recovery in SX is projected at 94%. Both extraction and strip units are expected to run in the organic continuous mode. Solution is pumped from the PLS pond to the extraction circuit where it is contacted with the organic phase to extract copper from the aqueous phase. Spent electrolyte from the EW process enters the strip circuit at the primary mix tank and is mixed with the loaded organic stream prior to passing through the strip settler for disengagement of the aqueous and organic phases. Copper-rich electrolyte flows by gravity to the strong electrolyte tank. Strong electrolyte contains minor amounts of particulate solids and entrained organic, which are removed prior to EW using CoMatrix dual media filters. A reverse flow design is selected for the mixer/settler layout to minimise plant footprint and pipe run length. Primary and secondary single mix tanks are utilised for each stage. The
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settlers are constructed with concrete walls lined with FRP. The settler roofs are constructed of steel cladding with access ports for maintenance. The SX area includes a series of floor drains that drain to a set of sumps/firetraps. This arrangement eliminates pooling of corrosive or combustible fluids in the bund. Crud from various areas within the SX plant is pumped through the crud centrifuge that splits the crud into its three constituent phases. The aqueous phase is returned to the SX circuit, whilst cleaned organic phase is either returned to the SX circuit or treated with activated clay. Contaminated solids are collected for separate disposal.
2.4.7 Electrowinning (EW) The EW circuit utilises permanent cathode technology to produce LME Grade A cathode copper (around 99.99%). EW is conducted using a total of 122 cells at a nominal current density of 320 A/m2. Copper plating is continuous over a period of six days before the cathodes are removed and processed for dispatch. The copper-rich electrolyte (strong electrolyte) passes to the EW circuit where copper is recovered in the form of copper cathodes. Electrolyte that has been depleted of copper during the EW process (spent electrolyte) is recycled to the strip stage in the SX circuit (Charriot resource 2009).
2.5 Sulphide ore plant The overall process flow sheet for the Sulphide plant is shown in figured 4:
2.5.1 Comminution The comminution circuit is designed to treat 5 Mt/a of sulphide ore to produce a product size of P80 150 m. It is composed by (figure 4):
Primary crushing circuit
Primary Grinding and Pebble Crushing circuit

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Secondary Grinding and Classification 2.5.2 Flotation The flotation circuit is composed by bulk flotation, concentrate regrind, cleaner flotation and recleaner flotation (figure 4).
Bulk flotation: cyclone overflow from the secondary grinding circuit, at a pulp density of 35% solids and pH of 9, reports to the rougher/scavenger circuit. The rougher flotation stage consists of two 70 m3 tank cells, and the scavenger flotation stage consists of four 70 m3 tank cells. The total installed residence time for the rougher-scavenger flotation circuit is 20 minutes. Rougher/scavenger flotation concentrates are pumped to the regrind circuit for further grinding. Concentrate regrind: the rougher and scavenger concentrates report to the regrind ball mill circuit for fine grinding. A P80 in regrind cyclone overflow of approximately 49 m is achieved. Cleaner/recleaner flotation: selective flotation is achieved in the cleaner flotation circuit through the addition of collector and frother, and by increasing the pulp pH to 11. Cleaner flotation is carried out in four 38m3 cells with a total nominal residence time of 10 minutes.
Cleaner concentrate is transferred for further cleaning in the recleaner circuit. The recleaners consist of three 16 m3 u-shaped flotation cells with a total nominal residence time of 10 minutes. The recleaner concentrate is pumped to the concentrate handling area. The cleaner flotation tailings flow to cleaner scavenger flotation. The cleaner scavengers consist of three 38 m3 u-shaped flotation cells with a total nominal residence time of 10 minutes. The cleaner scavenger flotation tailings are transferred to the tailings disposal circuit (Charriot resources, 2009).
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2.5.3 Concentrate handling The recleaner concentrate is screened to remove debris from the slurry, in order to protect the thickener and downstream filter operation. Thickening of the concentrates is conducted using a 15 m diameter high-rate thickener to produce a product at 65% solids. The thickened stream is transferred to the filter feed-tank, which provides a storage capacity equivalent to 12 hours. The concentrate solids are dewatered by a pressure filter. The filter discharges moist concentrate directly onto a storage slab below the filter. The filtrate returns to the concentrate thickener (figure 4). Concentrate is transferred from the stockpile into a storage shed by a FEL, which is also used to load road trucks for shipment (Charriot resources, 2009).
Figure 4: Justa Mine - Sulphide circuit 2.5.4 Tailings thickening and disposal Two tailings streams are produced by the concentrator, the cleaner scavenger tailings (CST) stream with potential for acid generation, and the rougher scavenger (RST) tailings stream with low acid generation potential (figure 4).
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2.6 Products: Mina Justa will produce two kinds of products which are: copper cathodes and copper concentrate with some content of gold and silver.
2.6.1 Copper Cathode The copper cathode has 99.99 % of purity and it will be sold in South Korea.
2.6.2 Copper concentrate The average of copper concentrate is 37.38 % with 0.727 g/t of gold and 337.2 g/t of silver.
2.7 Copper supply
According to ICSG data (2011), world copper refined production rose by 14.8 Mt in 2000 to 19.48 Mt in 2011 (table 3). Between 2000 and 2010 this is basically explained because during this period there were some changes such as: a 680,000 t increase in Chilean production, a combined 1.9 Mt increase due to the revival of the African copper belt and expansions/new projects in Peru and China, and a combined decline of about 625,000 t (18%) in Canadian, Indonesian, Mexican and U.S. production. On a regional basis, production increased by 157% in Africa (800,000 t), 24% in Latin America (1.4 Mt), 26% in Asia (660,000 t) and 12% in Europe (170,000 t), and declined by 19% in North America (450,000 t) and 4% in Oceania (45,000 t).
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20 18 16 14 Mtonnes 12 10 8 6 4 2 0
2000 2001
World refined copper production
2002
2003
2004
2005 2006 Years
2007
2008
2009
2010
2011
Figure 5: World refined copper production
2.8 Copper demand World annual refined copper usage increased from 15.19 to 19.68 Mt between 2000 and 2011. Growth was driven by China where apparent usage over the 10-year (2000-2010) period increased by around 5.1 Mt. World usage excluding China in fact decreased by 6% (750,000 t) during the period, with particularly weak usage in 2008 and 2009 due to the world economic recession. On a regional basis, usage grew in Africa by 119% (155,000 t), in Asia ex-China by 22% (800,000 t), and in Europe ex-EU by 58% (312,000 t). Usage decreased in the Americas by 27% (1.1 Mt), in the EU by 22% (935,000 t), and in Oceania by 24% (ICSG, 2010).
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20 18 16 14 Mtonnes 12 10 8 6 4 2 0
2000
World refined copper consumption
2001
2002
2003
2004
2005
Years
2006
2007
2008
2009
2010
2011
Figure 6: World refined copper consumption
Year
Supply (Mt)
Refined production
Demand(Mt)
Refined consumption Difference
2000 14.80 15.19 -0.39 2001 15.64 15.01 0.62 2002 15.35 15.21 0.14 2003 15.27 15.72 -0.45 2004 15.92 16.83 -0.91 2005 16.57 16.68 -0.11 2006 17.29 17.06 0.23 2007 17.93 18.24 -0.31 2008 18.20 18.06 0.14 2009 18.28 18.09 0.19 2010 19.04 19.39 -0.35 2011 19.48 19.68 -0.20 Table 3: world production and consumption of copper (ICSG, 2010-2011).
2.9 Strategic analysis
Some important points to be considered for copper projects:

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Based in supply and demand for copper of the last 12 years, it is expected that copper demand will continue growing in the near future. In fact new projects such as La Granja owned by Rio Tinto (Rio Tinto, 2011), the expansion of Olympic Dam (BHP Billiton, 2011) and the new expansion in Codelco (Codelco, 2011) reflects the necessity to cover this actual demand for copper.
According to chariot resource (2009), the operating expenditure of copper projects are very attractive in developing countries (16.70 US$/t).
Some issues in developing countries such as social conflicts, poverty, royalties, risk country and closure of mines need to be addressed and discussed.
The NPV (US$ 906.27M) of Justa mine give to investors an important view of profitability of this kind of copper deposits in developing countries.
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PART 3: MODEL INPUTS, RESULTS AND DISCUSSION

3.1 Inputs and Assumptions Some inputs are based in the feasibility report of chariot resources 2009 (Charriot resources-technical report NI 43-101, 2009), some web pages, and other reasonable assumptions were done based in mineral finance and project evaluation 601, and resource sector finance 602 units. 3.1.1 Pricing basis: Copper: The price is based in the LME prices between 1998 and 2011 and with this data it was done the stochastic model in order to predict the prices for the time of the project (2012-2023). For copper concentrates grading 35% Cu or more it was paid 96.5% and for copper concentrates grading less than 35% Cu it was paid 96.5%. Gold: The price of gold is based in the average of 2011 of LME (1499.5 US$/Oz). Payable gold: Less than 0.5 g/dmt, 0% (assumption); between 0.5 and 1 g Au/dmt,70% (assumption); between 1 g Au/dmt and 3 g, 90%; 3 g Au/dmt or more. Silver: The price of silver is based in LME, and for the project is based in the average of 2011(36 US$/Oz). Payable silver: Less than 30 g Ag/dmt, 0; 30 g Ag/dmt or more, 90%. Copper Price participation is 10% on the basis of 90/lb. Treatment charge 87 US$/t-copper concentrate. Refining charge 1.9 US$/t-copper concentrate. Au (5 US$/payable oz) -Refining charge Ag (0.4 US$/payable oz) -Refining charge The ocean freight from Peru to Korea for copper cathodes was 56.91 US$/t. The ocean freight from Peru to Korea for copper concentrates was 45.5 US$/t.
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3.1.2 Annual production schedule-Mining and processing The annual production for mining and processing is shown in tables 4, 5, 6 and 7.
3.1.2.1 Annual production schedule mining
Item Mining Vat-Oxides ('000 t) Cu (%) Ore-Sulphides('000 t) Cu (%) Au (g/t) Ag (g/t) Total ore ('000 t) Waste ('000 t) Total Mining ('000 t) Strip ratio Total 114,602 0.56 48,794 1.37 0.030 14.11 16,3396 402,363 565,759 2.45
2011
2012 Yr 1
2013 Yr 2 20,157 0.58 11
2014 Yr 3 13,846 0.61 4,901 1.37 0.02 10.9
2015 Yr 4 7,768 0.56 5,038 1.28 0.02 11.1 12,806 47,807 60,613 3.73
2016 Yr 5 11,329 0.54 5,062 1.99 0.03 20 16,391 43,723 60,114 2.67
215
10,845 0.55
215 4,171 4,386 19.40
10,845 47,190 58,035 4.35
20,168 39,764 59,932 1.97
18,747 41,726 60,473 2.23
Table 4: Annual production schedule from 2011 to 2016-mining
Item Mining Vat-Oxides ('000 t) Cu (%) Ore-Sulphides ('000 t) Cu (%) Au (g/t) Ag (g/t) Total ore ('000 t) Waste ('000 t) Total Mining ('000 t) Strip ratio
2017 Yr 6 14,923 0.59 4,803 2.00 0.03 22.8 19,726 40,669 60,395 2.06
2018 Yr 7 10,484 0.59 5,172 1.18 0.02 12.4 15,656 44,743 60,399 2.86
2019 Yr 8 9,109 0.57 5,024 1.03 0.02 11.2 14,133 46,097 60,230 3.26
2020 Yr 9 9,411 0.52 5,010 1.04 0.03 11.2 14,421 29,740 44,161 2.06
2021 Yr 10 5,750 0.51 5,048 1.09 0.04 10.2 10,798 11,308 22,106 1.05
2022 Yr 11 765 0.48 5,632 1.42 0.05 15.2 6,397 4,440 10,837 0.69
2023 Yr 12
3,093 1.30 0.04 15.6 3,093 985 4,078 0.32
Table 5: Annual production schedule from 2017 to 2023-mining

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3.1.2.2 Annual production schedule-Processing

Item Total processing-total Vat-Oxides ('000 t) Cu (%) Cu Recovery (%) Cu in cathode (t) Float ore feed ('000 t) Cu (%) Au(g/t) Ag(g/t) Cu rec to conc (%) Au rec to conc (%) Ag rec to conc (%) Concentrate (Dry t) Cu con grade(%) Au con grade(g/t) Ag con grade(g/t) Cu in concentrate (t) Au in concentrate (oz) Ag(oz) Total Copper(t) 114,602 0.56 74.84 478,852 48,794 1.37 0.03 14.11 92.77 80 80 1665,086 37.4 0.73 337 621,376 38,421 18151,295 1100,228 15,397 50,721 Total 2011 2012 3,550 3,550 0.55 79.00 15,397 2013 11,699 11,699 0.58 75.40 50,721 2014 16,421 12,001 0.61 70.70 52,011 4,420 1.37% 0.02 10.95 91.00 80 80 137,016 40.10 0.39 299 54,943 1,718 1317,140 106,955 2015 17,000 11,999 0.56 72.90 48,985 5,001 1.28% 0.02 11.18 91.90 80 80 137,232 42.70 0.56 329 58,598 2,471 1451,581 107,583 2016 17,002 12,001 0.54 75.70 49,058 5,001 1.99% 0.03 20 94.70 80 80 223,411 42.10 0.48 397 94,056 3,448 2851,578 143,114
Table 6: Annual production schedule from 2011 to 2016-processing
30
Item Processing total Vat-Oxides (000 t) Cu (%) Cu Recovery (%) Cu in cathode (t) Float-ore-feed('000 t) Cu (%) Au (g/t) Ag (g/t) Cu rec to conc (%) Au rec to conc (%) Ag rec to conc (%) Concentrate (Dry t) Cu con grade (%) Au con grade(g/t) Ag con grade(g/t) Cu concentrate (t) Au concentrate (oz) Ag (oz) Total Copper (t)
2017 16,999 11,999 0.59 71.80 51,089 5,000 2.00 0.03 22.86 94.40 80 80 273,076 34.50 0.63 319 94,211 5,531 2800,689 145,300
2018 17,000 12,000 0.59 71.90 51,078 5,000 1.18 0.02 12.43 92.40 80 80 143,342 38.00 0.7 340 54,470 3,226 1566,902 105,548
2019 17,000 12,000 0.57 76.30 52,006 5,000 1.03 0.02 11.23 91.60 80 80 127,154 37.10 0.67 375 47,174 2,739 1533,031 99,180
2020 17,000 12,000 0.52 78.50 49,172 5,000 1.04 0.03 11.27 92.10 80 80 145,406 33.00 0.88 288 47,984 4,114 1346,377 97,157
2021 17,000 12,000 0.51 77.00 47,401 5,000 1.09 0.04 10.24 92.40 80 80 14,8882 33.70 1.17 256 50,173 5,600 1225,385 97,574
2022 8,353 3,353 0.48 74.00 11,935 5,000 1.42 0.05 15.21 93.90 80 80 181,404 36.70 0.98 370 66,575 5,716 2157,934 78,510
2023 4,372
4,372 1.30 0.04 15.69 93.30 80 80 148,165 35.90 0.81 399 53,191 3,859 1900,678 53,191
Table 7: Annual production schedule from 2017 to 2023-processing
3.1.3 Capital Expenditure (CAPEX) The estimated total costs are summarised in table 2 and 3. This capex is in real dollars and was converted to nominal dollars. The pre-production striping was 28.9 US$M which also was converted to nominal dollars. In addition, it was done the depreciation schedule (diminishing value-premium 200%).
31
3.1.3.1 Oxide plant and mining
Area 1 10 11 12 13 14 15 20 30 40 50 60 70 79 80 81 82 83 84 95 96 97 98 200
Area Description General Plant Crushing and Screening Primary Crushing Primary Stockpile and Reclaim Sec-Screen-Crush/Tertiary Crushing Tertiary-Screen/Quater Crushing Quaternary Screening Vat Leaching Solvent Extraction Electrowinning Reagents Oxide Services Oxide Infrastructure Oxide Mobilisation and Demobilisation Temporary Facilities Commissioning Oxide Vendor Representatives First Fills and Spares Loose Tools and Equipment Power Supply Plant Access Road Construction Camp and Village Water Supply Mining Direct Costs Subtotals EPCM Indirect Costs Subtotals Owners Costs Totals
Total Cost(USM) 12.32 1.21 13.08 5.90 21.52 24.36 11.18 73.54 20.87 32.16 2.64 3.87 23.63 3.27 4.79 2.22 1.16 12.66 1.34 12.70 8.10 18.71 18.85 123.38 453.44 56.19 509.62 37.24 546.87
Table 8: Oxide plant and mining capital costs
32
3.1.3.2 Sulphide plant
Area
Area Description
Total Cost(USM)
1 98 110 120 130 140 160 170 180 188 190 191 192 193
General Plant Water Supply Sulphide Primary Crushing Sulphide Grinding Sulphide Flotation Sulphide Concentrate Thickening and Filtration Sulphide Tailings Thickening and Disposal Sulphide Reagents Sulphide Services Mobilisation and Demobilisation Temporary Facilities Commissioning Vendor Representatives First Fills and Spares Direct Costs Subtotals EPCM Indirect Costs Subtotals Owners Costs Totals
5.51 4.06 17.22 40.35 19.85 8.63 17.86 2.86 8.86 2.43 2.44 0.56 0.62 4.41 135.65 22.13 157.78 10.53 168.31
Table 9: Sulphide plant capital costs
3.1.3.3 Sustaining and deferred capital Sustaining capital represents the amount of capital investment, required to sustain and support the process plant operation at its most productive and efficient level. Table 10 shows the sustaining and deferred capital in real dollars.
33
PLANT
DESCRIPTION Deferred Capital
TOTAL COST (USM)
Sulphide Sulphide Sulphide Sulphide
Recleaner concentrate pump 2 Tailings Storage Facility Phase 2 Tailings Storage Facility Phase 3 Pressure Filter Upgrade Sub-Total Deferred Capital Sustaining Capital
0.03 3.22 4.64 0.51 8.40
Oxide/Sulphide Oxide/Sulphide Oxide/Sulphide
Replacement of computers Mining Sustaining Capital Vehicles Sustaining Capital Sub-Total Sustaining Capital TOTAL
1.41 15.19 7.86 24.46 32.86
Table 10: Sustaining and deferred capital
3.1.3.5 Closure cost Table 11 present the schedule in real dollars and was converted to nominal dollars.
Summary of Project Closure Costs 2017 Progressive Closure Final Closure Total (USM) 0.69 0.69 2018 0.32 0.32 2019 0.16 0.16 2020 1.66 1.66 2021 0.85 3.01 3.86 2022 5.56 5.56 2023 3.22 3.22 2024 0.14 0.14
Table 11: Closure costs
34
3.1.4 Operating Expenditure (OPEX) It is based in the feasibility study of chariot resource 2009 and also it was assumed that it is nominal.
Summary of Project Operating Costs (US$/t ROM processed) Area
Yr-1 2012 2013 2014 2015 2016
Period
2017 2018 2019 2020 2021 2022 2023
Mining Oxide Plant Sulphide Plant General/Adm Corporate Office (Lima) Transport/ Marketing Total
0 0 0 0 0
9.88 5.76 2.14 0.25
5.47 5.68 1.3 0.15
3.72 5.68 4.9 1.08 0.11
3.6 5.69 4.82 1.04 0.11
3.68 5.69 5.2 1.05 0.11
3.84 4.5 5.12 1.05 0.11
3.74 4.49 5.06 1.05 0.11
3.74 4.52 4.81 1.05 0.11
2.98 4.52 5.24 1.04 0.11
1.85 4.46 4.8 1.03 0.11
2.24 4.57 5.16 1.88 0.22
2.07 4.92 2.95 0.38
0.23
0.23
3.42
3.08
4.74
4.88
2.65
2.6
2.66
2.61
7.18
11.9
18.26
12.8
18.9
18.3
20.4
19.5
17.1
16.83
16.55
14.8
21.2
22.2
Table 12: Operating expenditure for Justa Mine project
3.1.5 Royalties and taxes
3.1.5.1 Royalties: According to the Peruvian government the royalties are: Royalties @ 1% first 60 M Royalties @ 2% first 60 M Royalties @ 3% excess 120M
3.1.5.2 Taxes: Corporate tax (Peruvian government): 32%
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3.1.6 Interest, borrowing and discounts Average inflation (2001-010): 2.3% Real cost of equity rate (feasibility study): 8% Nominal cost of equity: 10.48% Nominal cost of debt (assumption): 10% Real price escalation rate (assumption): 1% Real cost escalation rate (assumption): 2% Nominal bank interest rate (assumption): 7.5% Percentage of CAPEX borrowed: 70% Nominal risk free rate: 6.6% (trading economies, 2011)
3.1.7 Stochastic Model-Copper
Cu LME spot price used was 12 October 2011 Cu expected spot prices were calculated for 12 years S&P 500 index and LME Cu prices were used for correlation
3.1.8 Sensitivity Analysis 3.1.8.1 Sensitivity analysis: One input-One output It was analysed the behaviour of WACC and NPV 3.1.8.2 Sensitivity analysis: Many inputs - One output
In relation to copper price, copper in concentrate, copper in cathode and OPEX it was used a factor with the objective to do a sensitivity analysis.
36
Inputs Copper Price (US$/t) Initial CAPEX-Nominal-1 year (US$ million) Initial CAPEX-Nominal-2 year (US$ million) Au (US$/payable oz) -Refining charge Ag (US$/payable oz) -Refining charge Cathodes: South Korea, $/t -Ocean freight Concentrates: South Korea, $/t -Ocean freight Price-Au (US$/oz)-2011 Price-Ag (US$/oz)-2011 Nominal Before-tax WACC (% p.a.) Cu in cathode-t (factor) Cu in concentrate-t (factor) OPEX- US$/t (factor) Table 13: Inputs of sensitivity analysis 3.1.9 Risk simulation (Monte Carlo)
Low 0.7 399.44 150.30 3.50 0.25 39.84 31.85
Base 1 570.6 214.7 5.0 0.4 56.9 45.5
High 1.3 741.82 279.14 6.50 0.46 73.98 59.15 1949.38 46.75
1049.66 1499.5 25.18 7.10% 0.7 0.7 0.7 36.0
10.15% 13.19% 1 1 1 1.3 1.3 1.3
The table 14 shows the inputs of Monte Carlo simulation that was chosen: Inputs Copper Price (US$/t) Initial CAPEX-Nominal-1 year (US$ million) Initial CAPEX-Nominal-2 year (US$ million) Au (US$/payable oz) -Refining charge Ag (US$/payable oz) -Refining charge Cathodes: South Korea, $/t -Ocean freight Concentrates: South Korea, $/t -Ocean freight Price-Au (US$/oz)-2011 Price-Ag (US$/oz)-2011 Nominal Before-tax WACC (% p.a.) Cu in cathode (t) Cu in concentrate (t) Table 14: Inputs of Monte Carlo simulation
37
Function randlognormal(1,0.24) randtriangular(399.44,570.63,741.82) randtriangular(150.3,214.72,279.14) randlognormal(5,1.22) randlognormal(0.35,0.085) randlognormal(56.9,13.94) randlognormal(45.5,11.5) randlognormal(1499.52,367.31) randlognormal(35.97,8.81) randtriangular(7.1%,10.15%,13.9%) randtriangular(0.7,1,1.3) randtriangular(0.7,1,1.3)
3.2 Results and Discussions 3.2.1 Base case DCF-Stochastic The base case DCF based on stochastic pricing method had the following results: DCF 12 years (NPV): US$906.27 M IRR: 25.96% K/E: US$1.09 DPBP: 6 years The present value of net cash flow is represented in figure 7 below:
PV Net cash flow

$600
$400
$200
$0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 -$200
-$400
-$600
Figure 7: Present value of net cash flow of Justa mine project
NPV: The NPV of Justa Mine was greater than 0 (US$906.27M) which means that the project is very attractive for investors. This NPV is affected by the PV net cash flow which according the figure 7 have some variations during the life of the project. The first 2 years is negative because the investment was done, in 2012 began the production of copper oxides (table 7: 3.55Mt), in 2013 the production increase to 11.699Mt and in 2014 the sulphide plant (4.42 Mt) entered to work, as a result the total production increase to 16.421 Mt which is reflected in the PV net cash flow. Between 2015 and 2021 the production has similar rates of production but there were some changes in the head grade of the float ore feed between 2018 and 2021(1.18%, 1.03%, 1.04% and 1.09) which basically affected the
38
quantity of metallic copper recovered, as a result the cash flow was reduced. In 2022 oxide production was reduced to 3.35 Mt and the production of sulphides was the same, but the sulphide head grade (1.42%) and the concentrate grade (36.7%) increased, as a result, the reduction in the cash flow was not strong when is compared with 2021. In 2023 there is not production of oxides and this is reflected in the cash flow. In 2024 is only considered the salvage value of assets, because the project will finish in 2023 (assumption 120% of written down value). IRR: The return on equity (profitability) of Justa Mine project was 25.96% which is
measured for the IRR.
K/E: The capital efficiency, which measures the value added per dollar invested for the Justa project is US$1.09 per dollar invested.
DPBP: The payback period for Justa project to repay the initial investment was 6 years.
3.2.2 Sensitivity analysis: One input-One output 3.2.2.1 Internal rate of return The figure 8 shows the relationship between NPV and nominal before tax WACC. The IRR measures the project return on equity. The before-tax WACC was used as a discount rate for Justa Mine where its NPV becomes zero at 25.96%. The NPV at before-tax WACC in excess of 25.96% becomes negative. If the required rate of return of Justa mine were higher than this, then the project would be rejected.
39
SensIt 1.30 Academic

3000
2500
2000
NPV US$M
1500
1000
500
-500 0% 10% 20% 30% 40% 50% Nominal Before-tax WACC (% p.a.)
Figure 8: NPV and WACC 3.2.3 Sensitivity analysis: Many inputs - One output 3.2.3.1 Tornado diagram The Tornado diagram re-orders inputs in decreasing sensitivity such as copper price, Cu in cathode, Cu in concentrate, WACC, OPEX, CAPEX year 1, CAPEX year 2, silver price, ocean freight concentrates, gold price, ocean freight cathode, silver refining charge and gold refining charge (figure 9). For example the square swing for copper price is 51.4 % which means that it is the input that has more influence in the model (table 15).
40
SensIt 1.30 Academic Copper Price (US$/t) Cu in cathode (t) Cu in concentrate (t) Nominal Before-tax WACC (% p.a.) OPEX Initial CAPEX-Nominal-1 year (US$ million) Initial CAPEX-Nominal-2 year (US$ million) Price-Ag (US$/oz)-2011 Concentrates: South Korea, $/t -Ocean freight Price-Au (US$/oz)-2011 Cathodes: South Korea, $/t -Ocean freight Ag (US$/payable oz) -Refining charge Au (US$/payable oz) -Refining charge
0 200 400 600 0.7 0.7 0.7 13.2% 1.3 741.82 279.14 25.2 59.2 1,049.7 74.0 0.5 6.5 800 0.7 399.44 150.30 46.8 31.9 1,949.4 39.8 0.2 3.5 1000 1200 1400 1600 1800 1.3 1.3 7.1% 1.3
NPV US$M
Figure 9: Sensitivity analysis-Tornado diagram

NPV US$M Corresponding Input Value Input Variable Copper Price (US$/t) Cu in cathode (t) Cu in concentrate (t) Nominal Before-tax WACC (% p.a.) OPEX Initial CAPEX-Nominal-1 year (US$ million) Initial CAPEX-Nominal-2 year (US$ million) Price-Ag (US$/oz)-2011 Concentrates: South Korea, $/t -Ocean freight Price-Au (US$/oz)-2011 Cathodes: South Korea, $/t -Ocean freight Ag (US$/payable oz) -Refining charge Au (US$/payable oz) -Refining charge Low Output 0.7 0.7 0.7 13.2% 1.3 741.82 279.14 25.2 59.2 1,049.7 74.0 0.5 6.5 Base Case 1 1 1 10.1% 1 570.63 214.72 36.0 45.5 1,499.5 56.9 0.4 5.0 High Output 1.3 1.3 1.3 7.1% 0.7 399.44 150.30 46.8 31.9 1,949.4 39.8 0.2 3.5 Low 215.11 558.27 560.11 620.71 643.87 750.85 853.18 859.33 900.20 903.73 903.73 905.81 906.26 Output Value Base 906.27 906.27 906.27 906.27 906.27 906.27 906.27 906.27 906.27 906.27 906.27 906.27 906.27 High 1595.40 1252.26 1252.43 1288.82 1168.35 1061.69 959.37 953.22 912.35 908.81 908.81 906.73 906.28 Swing 1380.30 694.00 692.32 668.11 524.48 310.84 106.19 93.89 12.15 5.09 5.08 0.91 0.02 Percent Swing^2 51.4% 13.0% 12.9% 12.0% 7.4% 2.6% 0.3% 0.2% 0.0% 0.0% 0.0% 0.0% 0.0%
Table 15: Sensitivity analysis-NPV values
41
3.2.3.2 Spider diagram Figure 10 shows how the mine project is typically highly sensitive to variation in factors affecting its revenue.
SensIt 1.30 Academic

1800.00 Copper Price (US$/t) 1600.00 Cu in cathode (t) 1400.00 Cu in concentrate (t) 1200.00 Nominal Before-tax WACC (% p.a.) 1000.00 OPEX 800.00 600.00 400.00 200.00 0.00 50% 60% 70% 80% 90% 100% 110% 120% 130% 140% Initial CAPEX-Nominal-1 year (US$ million) Initial CAPEX-Nominal-2 year (US$ million) Price-Ag (US$/oz)-2011 Concentrates: South Korea, $/t Ocean freight
NPV US$M
Input Value as % of Base Case
Price-Au (US$/oz)-2011
Figure 10: Sensitivity analysis-Spider diagram
A rising slope indicates positive correlation between NPV and inputs and vice versa. The steeper the slope the more sensitive the NPV is to the input in this case the copper price and the last sensitive was the refining charge for gold. 3.2.4 Risk Analysis (Monte Carlo simulation) After 10,000 iterations the simulation generated an expected NPV of the Justa Mine project of US$ 888.77 M, within a positively skewed of 0.7539 and standard deviation of US$ 567.99 M. According to the histogram of Figure 11 has shown that minimum and maximum NPVs of US$ -510.53 M and US$ 3813.48 M. The first quartile, median and third quartile is respectively US$ 483.71 M, US$821.81 M, and US$1216.89 M.
42
RiskSim 2.40 Academic - Histogram

2000 1800 1600 1400
1200 1000 800 600 400 200 0 -1000 -500 0 500 1000 1500 2000
Mean 888.77 St. Dev. 567.99 Mean St. Error 5.68 Minimum -510.53 First Quartile 483.71 Median 821.81 Third Quartile 1216.89 Maximum 3813.48 Skewness 0.7539
Frequency
2500
3000
3500
4000
NPV
Figure 11: Monte Carlo-Histogram
The cumulative probability distribution of Figure 12 shows that there is 2.701 % probability of realising a negative NPV and 54.63% that the NPV will exceed the expected US$888.77 million.
RiskSim 2.40 Academic - Cumulative Chart
1.0 0.9
Cumulative Probability
0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0.0 -1000 -500 0 500 1000 1500 2000 2500 3000 3500 4000
NPV US$M
Figure 12: Monte Carlo-Cumulative probability and NPV
Table 16 presents the differences between NPV, IRR, K/E and DBPB of 3 models which are: DCF-simplistic, DCF stochastic and MAP. According to this figure the DCF simplistic have the
43
best NPV, then MAP and finally DCF stochastic. This is explained because in the first case using 10.15% of nominal discount rate, prices are inflated and escalated, this increase the price considerably when is compared with the other models; in the case of MAP is used nominal risk free rate of 6.6% and in the stochastic model it was used 10.15 % of nominal discount rate which is reflected in the final NPV.
Item NPV (USM) IRR % K/E DBPB DCF Simplistic 1678.37 33.22% 2.01 6 MAP 916.47 21.14% 1.10 6 DCF Stochastic 906.27 25.96% 1.09 6
Table 16: Comparison of DCF simplistic, stochastic and MAP 3.2.5 Stochastic Model The figure 13 shows the expected spot prices, forward prices and LME futures with 10 % of under and upper confidence. It was used data between 5 January of 1998 and 13 October of 2011. In order to find NPV, in the case of the stochastic model it was used expected spot prices, for MAP forward prices and for simplistic model price was inflated and escalated.
COPPER PRICE STOCHASTIC MODEL As at October 2011

$13,000 $12,000 $11,000
Cu price US$/t
$10,000 $9,000 $8,000 $7,000 $6,000 $5,000 $4,000 $3,000
6 Years
10
11
12
Expected spot price ($/unit) Lower 10% confidence LME FUTURES
Forward price ($/unit) Upper 10% confidence
Figure 13: Copper price stochastic model-October 2011

44
Part 4: CONCLUSIONS AND RECOMMENDATIONS
4.1 Conclusions The financial model has NPV of US$906.27 M. This means that the project has strong financial performance.
It was done a sensitivity analysis using some inputs which shows that the model is very sensitive to the copper price, then to copper in cathode, copper in concentrate, WACC, OPEX, CAPEX year 1, CAPEX year 2, silver price, ocean freight concentrates, gold price, ocean freight cathode, silver refining charge and finally for gold refining charge.
Justa Mine project has a probability of 2.701 % chance of NPV<0 based on the risk simulation.
The DCF stochastic model of Justa project used the expected spot prices of copper in order to reduce uncertainty.
4.2 Recommendations
It is recommended to invest in Mina Justa Project, because the project present a very attractive NPV (US$906. 27M).
It is recommended to do more geological exploration around the mine in order to identify more resources.
It is recommended to evaluate the possibility to build a smelter and refinery with the objective to processes copper concentrates and also the option to buy some concentrates of local producers if the smelter and refinery is constructed.
45
References:
Agrawal A. And K. Sahu. 2010. Problems, prospects and current trends of copper recycling in India: An overview. Resources, conservation and recycling 54(7): 401-416. http:// www.sciencedirect.com (Accessed August 22, 2011).
Charriot resources. 2009. Technical Report NI 43-101. http://www.sedar.com/FindCompanyDocuments.do?lang=EN&page_no=2&compan y_search=chariot+resources&document_selection=0&industry_group=A&FromDate =21&FromMonth=12&FromYear=2005&ToDate=21&ToMonth=06&ToYear=2011&V ariable=FilingDate (Accessed June 25, 2011). BHP Billiton. 2011. Olympic dam expansion. http://www.bhpbilliton.com (Accessed October 20, 2011). Boston consulting group. 2010. Copper industry overview. Codelco. 2011. Proyectos en desarrollo. http://www.codelco.cl (Accessed October 20, 2011). International copper study group. 2010. The world copper fact book 2010. http:// www.icsg.org (Accessed October 15, 2011). ___. 2011. Release of ICSG 2011 Statistical Yearbook. http:// www.icsg.org (Accessed October 16, 2011).
___. 2011. Copper Market Forecast 2011-2012. http:// www.icsg.org (Accessed October 16, 2011). Rio Tinto. 2011. Explorando la Granja. http://www.riotintolagranja.com (Accessed October 19, 2011)
Trading economies. 2011. Peru government bonds. http://www.tradingeconomics.com/peru/government-bond-yield (Accessed November 28, 2011).
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APPENDICES
47
Appendix 1: Gold and silver prices
Gold
Year 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
US$/oz 279.17 272.65 306.34 363.59 409.28 444.90 604.61 696.76 872.07 972.98 1225.08 1499.52
Silver US$/oz 4.95 4.43 4.56 4.88 6.65 7.31 11.57 13.39 15.02 14.65 20.16 35.97
48

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Curtin University Graduate School of Business

Mineral and Energy Capstone 603

Capstone Case Study MSc. Mineral Economics

Lecturer: Brian Maybee

Student: Jafet I. Carpio Vera

CAPSTONE CASE STUDY MINERAL AND ENERGY ECONOMICS CAPSTONE 603

Jafet I. Carpio Vera (Name)

CAPSTONE CASE STUDY MINERAL AND ENERGY ECONOMICS CAPSTONE 603

CAPSTONE CASE STUDY MINERAL AND ENERGY ECONOMICS CAPSTONE 603

2.5 Sulphide ore plant ......................................................................................................... 21

CAPSTONE CASE STUDY MINERAL AND ENERGY ECONOMICS CAPSTONE 603

2.6 Products: ........................................................................................................................ 24

Results and Discussions ............................................................................................ 38

CAPSTONE CASE STUDY MINERAL AND ENERGY ECONOMICS CAPSTONE 603

APPENDICES ............................................................................................................................. 47 Appendix 1: Gold and silver prices ..................................................................................... 48

CAPSTONE CASE STUDY MINERAL AND ENERGY ECONOMICS CAPSTONE 603

CAPSTONE CASE STUDY MINERAL AND ENERGY ECONOMICS CAPSTONE 603

CAPSTONE CASE STUDY MINERAL AND ENERGY ECONOMICS CAPSTONE 603

CAPSTONE CASE STUDY MINERAL AND ENERGY ECONOMICS CAPSTONE 603

CAPSTONE CASE STUDY MINERAL AND ENERGY ECONOMICS CAPSTONE 603

Background to the topic area explaining why it is of interest

CAPSTONE CASE STUDY MINERAL AND ENERGY ECONOMICS CAPSTONE 603

Simulate risk (Monte Carlo) Methodology

The general inflator, real price escalator and cost escalator.

CAPSTONE CASE STUDY MINERAL AND ENERGY ECONOMICS CAPSTONE 603

Operating expenses will be calculated.

Detail capital investment in real and nominal dollars.

Sensitivity analysis and Monte Carlo simulation

CAPSTONE CASE STUDY MINERAL AND ENERGY ECONOMICS CAPSTONE 603

Duration 3 days 7 days 4 days 10 days 4 days 5 days 7 days

Start 10/08/2011 13/08/2011 25/08/2011 29/08/2011 8/09/2011 12/09/2011 17/09/2011

Finish 12/08/2011 24/08/2011 28/08/2011 7/09/2011 11/09/2011 16/09/2011 23/09/2011

Project writing Presentation preparation

Project corrections Project editing Project submission

2 days 2 days 1 day

24/11/2011 25/11/2011 30/11/2011

25/11/2011 26/11/2011 30/11/2011

Table 1: Project timetable

CAPSTONE CASE STUDY MINERAL AND ENERGY ECONOMICS CAPSTONE 603

PART 2: LITERATURE REVIEW

Location of the project

Figure 1: Mina Justa Copper Project - General Location

CAPSTONE CASE STUDY MINERAL AND ENERGY ECONOMICS CAPSTONE 603

Major characteristics of Justa Mine project

163.4Mt @ 0.8 % Cu 402.4Mt 114.6 Mt @ 0.56 % Cu 48.8 Mt @ 1.37 % Cu 2.45 12 years 45

CAPSTONE CASE STUDY MINERAL AND ENERGY ECONOMICS CAPSTONE 603

The table 1 shows the pit inventory of the mine.

Table 2: Pit Inventory

Pit design is shown in figure 1.

Figure 2: Pit design

CAPSTONE CASE STUDY MINERAL AND ENERGY ECONOMICS CAPSTONE 603

Figure 3: Mina Justa- Oxide circuit flow sheet

CAPSTONE CASE STUDY MINERAL AND ENERGY ECONOMICS CAPSTONE 603

CAPSTONE CASE STUDY MINERAL AND ENERGY ECONOMICS CAPSTONE 603

CAPSTONE CASE STUDY MINERAL AND ENERGY ECONOMICS CAPSTONE 603

Primary crushing circuit

Primary Grinding and Pebble Crushing circuit

CAPSTONE CASE STUDY MINERAL AND ENERGY ECONOMICS CAPSTONE 603

CAPSTONE CASE STUDY MINERAL AND ENERGY ECONOMICS CAPSTONE 603

CAPSTONE CASE STUDY MINERAL AND ENERGY ECONOMICS CAPSTONE 603

2.7 Copper supply

CAPSTONE CASE STUDY MINERAL AND ENERGY ECONOMICS CAPSTONE 603

World refined copper production